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They sneeze; we catch Asian "flu'

Published Oct. 2, 2005

Welcome to the global village. When an especially virulent strain of the Asian flu strikes in Indonesia, Malaysia or Hong Kong, we get it too _ and big time.

And so do the Europeans, the Latin Americans and just about anybody else you can think of.

You may have figured out by now that this "flu" I'm talking about is really the seemingly irrational frenzy that took over the world's stock exchanges in recent days. Billions of dollars were being lost on an hourly basis Monday in what turned out to be the worst single-day sell-off of stocks since the big crash 10 years ago this month.

"Doesn't have a thing to do with me," you might say. "Don't invest in the New York Stock Exchange, must less the ones in Hong Kong or Jakarta, so if stocks go down the toilet over there, that's their problem, not mine."

Think again, friend. This is the global village, remember? Instant communications, free trade, multinational business and all that. When they sneeze in Hong Kong, we don't just say "Gesundheit" anymore. We catch whatever it is and start sneezing too.

Monday's 554.26-point drop in the Dow Jones was a pretty big sneeze. So whether or not you've got money in a pension scheme, a mutual fund or money market account, it might be a good idea to start paying attention.

Because what happens in Hong Kong, Jakarta or even Kuala Lumpur does involve you and me. It can cost us some peace of mind, maybe even real money.

Here are some of the reasons why:

First, the annual economic growth rate of these Asian nations has averaged a phenomenal 8 percent or more in recent years. That accounts for roughly half of the world's economic growth last year.

When that Asian growth rate stalls _ or as appears likely now, goes down _ these countries will buy fewer things from us. And when you consider that our exports to Asia have gone up roughly 70 percent during the last seven years _ to more than $200-billion _ it's easy to see we're talking about a lot of money and domestic jobs.

Another consideration is that many of America's biggest companies _ outfits on the Fortune 500 list of manufacturers _ have plants in Asia. And when there's a financial crisis or stock exchange collapse over there, these companies suffer in all kinds of ways.

First, because the stock market problems in Asia were linked to instability in the value of the local currencies, the U.S. dollar gets relatively stronger on the currency exchange markets. That, in turn, makes the profits of the American companies' Asian operations go down. Which in turn makes the parent company's profits go down here at home.

And that means fewer new jobs, or maybe even fewer jobs overall _ i.e., layoffs.

And that's not the end of it. A general sell-off like the one we had on Monday hurts just about everybody. Pension schemes, mutual funds and money market accounts stop growing the way we've come to expect them to grow. Some even lose overall value.

With less disposable income or money to invest, people stop spending on things that aren't absolutely necessary. Your Christmas buying might be lower key this year than it was last. Maybe you'll put off getting that new car or refrigerator. And since a lot of sales people work on commission . . .

Etc., and so on . . .

I first started paying attention to all this when I was living in Brussels, Belgium, in 1973. That was the year then-President Richard Nixon devalued the U.S. dollar 10 percent and within days it went down another 20 percent or so on the currency markets.

That might not have made much difference to people living in Florida or California, but to me it meant an immediate 30 percent pay cut, while living in a town that was already more expensive than New York City. That's when I started trying to figure out how all these currency exchange dealings, interest rates and international stock markets were connected.

The main point here is that when the markets take a dive in Kuala Lumpur, Jakarta or Hong Kong, we had better watch out. It might involve us almost as much as it involves those people we don't know on the other side of the planet.

Whether we like it or not, it's a global village. And it's time we got used to it.